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When it Comes to Investing, Conventional Wisdom Won’t Help You Retire

When it Comes to Investing, Conventional Wisdom Won’t Help You Retire

Earlier this week, I wrote about retirement planning and specifically why you may need options if you ever want to retire. I wasn’t the first person to ever write about that topic. It feels like thousands of financial planners address retirement planning every week.

But I believe I added something new to the conversation. I offered facts and data instead of stern admonitions to save more. And I provided a possible solution to the problem almost all of us face of not having enough money to retire.

I’m highlighting that as an example of one of the most important ideas in the trading world.

To know what everyone knows is to know nothing.

Thinking conventional wisdom will make money is a mistake many traders make.

We all know there is a retirement crisis. That’s the conventional wisdom.

Yet no one mentions the annuity factor which quantifies the problem while responding to changes in inflation and interest rates. This is something else I wrote about on Wednesday. Knowing about that number, you can plan based on data instead of fear.

The same idea applies to trading. Financial planners try to scare you away from trading by insisting stocks always go up in the long run and insisting no one can beat the market.

Stocks can move sideways for decades. They did that from 1966 to 1982.

Dow Jones 1956 to 1985 graph

They did that again from 2000 to 2013. These timeframes destroyed many retirement plans.

And obviously some people beat the market just fine over certain periods. I know of one stock picker in particular that beat the market by a factor of 6 over the last four years.

You must be prepared for stocks not to go up. You also need to ignore adviser’s warnings that you are doomed to fail.

If you ask about how great hedge fund managers like Jim Simons or Ray Dalio can beat the market, they call those managers anomalies and insist that proves their argument. It’s almost as if financial planners are more interested in charging annual fees of 2% than they are in learning about the markets.

Yet, financial planners are the gatekeepers to knowledge about investing. If all you know about investing is the standard stuff financial planners tell you, you know nothing and will never attain above-average returns. Their words will scare you into despair.

For example, planners point to a nice mathematical argument that says as a group, all investors will earn the average return of the stock market. They call this the efficient market hypothesis.

They’re right only because they abuse the math.

But the same applies to baseball. As a group, the average batting average is .236. Yet 17 players are batting above .300 and 112 are above average. Almost a third of the league is above average.

According to conventional investing logic, that’s impossible. No one can be better than average, yet quite a few players are. That’s not an anomaly. That’s how math works.

In the stock market, many traders will achieve better than average results while many will fare worse than average.

Those that beat the market will have an edge. An edge is a tool that the average trader doesn’t use, doesn’t have or doesn’t know about.

It might be the way they use options. Or it might be an indicator that they follow.

Remember, to know what everyone knows is to know nothing. So if you think you can use popular moving averages or indicators like stochastics to beat the market, you’re wrong. Everyone knows about them. If those indicators worked, everyone would be a winner.

In reality, maybe a quarter to a half of traders will be winners in the long run. They know what their edge is.

Maybe you don’t know what yours is yet. Maybe you’ll never find one. It doesn’t mean you can’t beat the market. It just means you need to listen to guys who know what they’re doing.

We give you good ideas in True Options Masters. The ideas are good enough that someone who knows what they’re doing can trade the ideas (and so someone who doesn’t can still learn).

If you’re not there yet, keep reading. You’ll get there. Consider subscribing to our premium research to expedite your options education. My One Trade might be a good place to start. It’s simple and it’s a little unconventional. Chad’s Quick Hit Profits is also great because he trades around the market’s blind spots.

Until you know what your edge is, don’t try to beat those who do.

We’re here to help you get wherever you want to be — whether that’s a true options master in your own right or just someone who benefits from their knowledge.

Regards,
Michael Carr signature
Michael Carr, CMT, CFTe
Editor, One Trade

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